Federal government gas-fired recovery

Comments from EnergyQuest’s August 2020 Australian LNG Monthly.

This week the Australian federal government announced a so-called Gas-fired Recovery. The plan appears to be largely concerned with the east coast, without anything obvious about Western Australia, Australia’s largest gas producer.

Much of the media focus has been on proposals for new pipelines and on proposals for new gas-fired power in NSW following the closure of the Liddell coal-fired power station.

New pipelines may well be necessary for increased east coast gas supply but there is no missing link that cannot be readily bridged. The critical element is finding and developing affordable gas to flow into any new infrastructure. Accordingly, two important measures announced by the government are:
• Setting new gas supply targets with states and territories and enforce potential “use-it or lose it” requirements on gas licenses.
• Unlocking five key gas basins starting with the Beetaloo Basin in the NT and the North Bowen and Galilee Basin in Queensland, at a cost of $28.3 million for the plans.

Gas supply targets are a good idea. The cheapest gas will always be the gas that is closest to the customers. The main culprits are NSW and Victoria. For NSW a decision on Narrabri development is due within weeks. This decision is critical for NSW manufacturers. We know too that NSW has substantial onshore gas resources beyond Narrabri (over 10,000 PJ or 10 Tcf). Over the last couple of years Victoria has been through a government-sponsored gas study, aimed at re-booting onshore exploration. A government-sponsored independent study along Victorian lines might be one way NSW onshore gas resources can be unlocked. In this context the additional funding for GISERA could help smooth the way.

In Victoria onshore exploration for anything other than conventional gas is illegal and AGL’s Crib Point LNG import terminal is mired in green tape. Making progress in Victoria is likely to be challenging but one potential resource, but which is off limits, is Victoria’s biogenic CSG. The presence of biogenic gas, associated with deep (450 -1,200m) brown coals, is extensive across the Gippsland Basin and Latrobe Valley.  It is estimated that EL 4416, covering 2,000 km2 of the onshore Gippsland Basin, hosts prospective biogenic CSG resources totalling around 3.7 Tcf. ExxonMobil and Ignite Resources were evaluating the resource. Exxon walked away from the joint venture in 2014 after the blanket ban on onshore drilling was put in place by the Victorian Government. A ban on CSG development remains and this resource is not likely to be evaluated in the foreseeable future. This is unfortunate because the gas is likely to be low cost, not require fracking and sufficiently deep such that it would not pose any danger to agricultural water supplies. Successful exploration and appraisal of this resource would solve all the problems of Victorian manufacturers. However this is likely to take time and in the meantime anything the Commonwealth can do to facilitate approval sooner or later for an LNG import terminal would be prudent in view of the decline in fields offshore Victoria.

There have been potentially significant gas resources identified in the Beetaloo Basin (6.6 Tcf), North Bowen Basin (9.7 Tcf) and the Galilee Basin (2.5 Tcf). Government support to unlock these basins would be worthwhile. However, it is early days yet for the Beetaloo and the NT government also has plans for energy-intensive manufacturing in Darwin.  It is also early days for the Galilee Basin. The history of the North Bowen Basin to date has been disappointing, notwithstanding numerous wells drilled. The Basin used to have significant 2P reserves booked but most of this has now been re-classified as Contingent Resources.  Overall, the best chance of finding affordable gas for NSW and Victorian manufacturers is onshore NSW and Victoria.

It will be interesting to see further details on a proposed Australian Gas Supply Hub at Wallumbilla and how this will vary from the current operation. However major gas supply hubs in the US and Europe work because they are part of large gas markets, 89 Tcf pa in the case of the US compared with 0.6 Tcf pa for eastern Australian domestic gas. However, the absence of timely information about gas contract bid and offer prices is certainly an impediment to an efficient east coast gas market. Unfortunately, the gas contract price data in the latest ACCC gas report is six months out of date. This is like the ASX only publishing share prices with a six-month delay. The ACCC continually monitors contract prices and publishing these (say) monthly rather than six months in arrears would significantly boost market transparency.